My credit card is hacked. Again. This is the second time my credit card is canceled because of fraudulent transactions. Make no mistake, I don’t use my credit card recklessly. I use it only with a few reputable websites and brick and mortar shops.

I didn’t have to pay for the fraudulent transactions attempted via my credit card. The credit card company has an AI fraud detection system that blocks suspicious transaction attempts. They temporarily block the credit card and let you know. If the transaction attempts are indeed not initiated by you, they completely cancel your credit card and issue a new one to you.

If instead of my credit card, my bitcoin address was hacked, I would have lost all of my funds in that address, irreversibly. This is a huge disadvantage of bitcoin. This is one of the reasons that keeps me from going all-in on bitcoin.

Why I Don’t Go All-In on Bitcoin

• Impossible to reverse fraudulent or otherwise erroneous transactions
• Difficult to secure funds. It always involves the risk of losing your keys and having them stolen.
• Volatility
• Huge rally in 2017
• Suspicious activity and practices in some exchanges

As you can understand, I have some funds in bitcoins, but these are only the profits I made from bitcoin. They still grow because of the price increase in bitcoin, but they represent only 2.5% of my savings. I don’t plan to invest any more savings in bitcoins for a while now.

Bitcoin wasn’t even on my radar for a long time no matter how crazy the price action was. I didn’t care about what the price did. Unless I don’t believe in the fundamentals, I don’t invest in an asset. At a certain time, I learned more about bitcoin and I was convinced. I’m still convinced about the underlying technology, but I have my doubts about the market behavior and security.

Maybe you are thinking about making your first bitcoin investment. Maybe you have already invested in bitcoin. In either case, I suggest that you go through the tips and consider the concerns that I express in this post before investing your first dollar.

Do Your Research

Do your research before investing a single dollar into bitcoin or any other cryptocurrency. Learn from as many resources as possible. Consider as many views as possible. In a bull market, clueless people who max out their credit cards to invest in bitcoin might look like geniuses. Don’t let that fool you. Always check counter-arguments as well.

Avoid Peer-to-Peer Bitcoin Transactions with People that You Don’t Know

Unlike the common belief that bitcoin transactions are anonymous, they are fully traceable. Having a public record of all the transactions in the history of bitcoin, starting from day one is the fundamental principle of bitcoin. How can a public record keeping system like that provide any anonymity of transactions?

“You might have to explain why you’re not a part of a money laundering system.”

What is going to happen when law enforcement catches a criminal with a bitcoin address who has a transaction with you, because you bought bitcoins from them? You will have to explain why you’re not a part of a money laundering system to law enforcement, which brings us to the next tip.

Only Buy Bitcoins from Reputable Exchanges

Do your research before starting an account with an exchange and depositing your money with them. Google their history. Have they been hacked before? If so how did they handle it? Did users lose any funds? What are their fee structure? Is it easy to withdraw and deposit money and bitcoins? Do they have system outages that prevent you from closing your position when the market goes against you? What is their overall reputation?

Never Ever Buy or Sell Bitcoin on Margin

Even if you have the full funds to back those trades. The volatility is so high that the prices can go against you quickly triggering an automated closure of your trade and then move in the direction of your bet, resulting in not only a loss of your deposited margin but also loss of potential profits.

Don’t Trade, Invest

Unless you have sufficient trading experience, don’t trade any serious money in cryptocurrency. Your psychology is your biggest enemy when trading. Your psychology will make you buy and sell in the worse moments. The only way to overcome that disadvantage is to learn, practice, and to invest only as much as you can afford to lose. A good starting point is the Little Book of Behavioral Investing by James Montier.

The “geniuses” who max out their credit cards to trade bitcoins and making profits will not only lose money when the market turns, they will also have to work for the credit card company to pay back for their mistake in the following months if not years.

Don’t Keep Your Funds in Exchanges

Just like any other financial institution, cryptocurrency exchanges are targets of hacking. The problem with the cryptocurrency exchanges is that the transactions on cryptocurrencies are mostly irreversible. For that reason, keeping your funds in fiat currencies such as dollar or euro, or in bitcoins on an exchange is risky.

“If an exchange gets hacked, they might go bankrupt and won’t be able to pay back your funds.”

Moreover, if you keep your bitcoins in your own wallet, you will be able to claim alternative cryptocurrencies, if a hard fork happens on bitcoin. If you don’t have your bitcoins in your own wallet, your ownership of the alternative cryptocurrencies will be at the mercy of your exchange. They might not offer you the alts, because they might want to claim it for themselves or they might think it’s not worth the effort.

You have full ownership of your bitcoins if they are on an address to which you have your private keys and/or seed words.

Only Invest What You Can Afford to Lose

If you want to get your hands dirty, start very small and try out the whole circle.

• Start your exchange account.
• Deposit money to your exchange account.
• Buy crypto from the exchange.
• Create a safe wallet with an address that you have full control over.
• Withdraw crypto to your wallet.
• Deposit crypto back to the exchange.
• Sell the crypto.
• Withdraw your money back to your bank account.

If you come across any obstacles or make any mistakes while executing the steps above, you will lose only a small amount of money. If you complete the steps above successfully, that means you have understood the system correctly, you can operate it safely, and you can invest more money in cryptocurrency.

In either case, don’t invest more than you can afford to lose, because any mistake on the transaction chain could result in 100% loss of all of your funds, even if that mistake isn’t yours.

Summary

This post is far from complete. The necessary knowledge to navigate the cryptocurrency market can easily fill a book. I just wanted to give you a direction to start your research and practice. Don’t discard the information here as common sense. It has its roots in collective experience of traders, not only mine.

If you think the information pointed out in this post is too much to work through, you might want to consider not investing in cryptocurrency at all. In either case, I wish you all the best.

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Do you have other tips or experience that you want to share? Drop a comment below.

Disclosure and Disclaimer

At the time of writing, 2.5% of my savings were in Bitcoin. This post is for information purposes only and not intended to be investment advice.

Burak Bilgin
Software developer with a Ph.D. and 15 years of experience. I write daily on personal development and life lessons. Sign up to my email newsletter to receive a weekly overview of my latest content on personal development and life lessons.